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The Economics of Automatic Milking Systems

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The Economics of Automatic Milking Systems The Economics of Automatic Milking Systems Kristen Schulte, Farm and Agri-Business Management Specialist, ISU Extension Dairy Team Larry Tranel, Dairy Field Specialist, ISU Extension Dairy Team Introduction Labor Changes Installation of Automatic Milking Systems (AMS) in Iowa One of the leading interest factors of AMS is the reduction continues to grow. It is probable that by 2025, up to 10% of labor. Current hours of milking for the designated herd of dairy producers may be using AMS in their dairy size in a conventional parlor needs to be compared to the operations. In order to assist dairy producers and their anticipated hours of milking labor after the AMS is lenders make informed decisions on the economic installed. Typically, the training period will last three variables associated with AMS consideration, these months, labor rates after this period should be used in the authors developed a partial budget spreadsheet tool. See assumptions. A reduction in time managing labor is Page three for assumptions and calculations. probable. There are two very important things to note when The herd management software includes rumination, milk comparing AMS versus conventional parlor milking. First, conductivity and cow activity. This information can lead to many factors are “highly variable” meaning that slight labor savings from heightened heat and mastitis detection changes in milk price or projected change in milk and faster identification of sick cows. There will likely be production, for instance, can significantly change the an increase in records management with the AMS to financial impact. Second, there is limited data to base utilize the software data that might utilized with various assumptions meaning producers and consultants conventional milking systems. will have limited research data for projecting costs and incomes with high confidence levels. Milk Production and Quality Changes Producers may experience losses in milk production six to Herd and Financial Assumptions nine % lower from 3x milking. From 2x milking, one could Herd size is important in calculating the number of AMS expect a three to five % increase or more. This is a huge needed. One AMS can handle an estimate 55-65 milking variable of AMS financial impact. Somatic Cell Counts cows. An additional 10% to 12% herd size can be added (SCC) and bacteria counts tend to increase in the first few when including dry cows. Thus, a 72 cow total herd per months after adoption to the AMS but tends to drop to AMS can be feasible depending upon milk production. initial levels or even lower after the adoption period. Milk price should be estimated as a long term, projected Feed Costs and Intake Changes average. Estimated cost per AMS should include new Feed cost per pound and intake level changes are seldom building or modifications to existing structures to house accounted for but can be significant. Milk production and the robot and adequate alleys for cow flow. An estimation feed intake have a positive correlation. AMS utilize a of $15,000 to $20,000 per AMS for housing can be pelleted feed during milking which may increase feed cost expected. On average the estimated to cost is around depending on cost and current TMR. However, feed cost $200,000 per AMS; multiple robot systems may provide could decrease relative to previous feeding practices as for price discounts. cows are individually fed with AMS. Many AMS installed in 2000 are still in operation. So, Culling and Herd Replacement Changes “years of useful life” is an unknown variable. Seven years Most producers report no change in culling percent. But, of useful life is a very conservative estimate while more expected change in turnover rate should be accounted for than 15 years may be risky, especially with the rapid in herds with poor feet and legs or possibly herds with development in AMS technology. The value of AMS after genetic potential for lots of reverse tilt udders. its useful life is also not clearly defined at this time. Utilities and Supply Changes for Milking Interest rate on money should display the rate which AMS systems may increase electrical usage up to 150 kWh represents cost of interest paid or the opportunity cost of per cow per year. Water usage may decrease 50 % or the owner’s money, or, a combination of both. Insurance more for small herds using only one AMS, but water usage rate is the rate per $1,000 of value of AMS. Value of AMS is more comparable for herds using two or three AMS. used for interest and insurance is the full investment value Chemical and supply costs may be higher in some less salvage value. instances but in most instances would slightly decrease. Bottom Line of AMS: Cows and People Like Them! ISU Extension Publication LT-KS-2013-1 Sample 144 Cow Dairy Converting to AMS Partial Budget Analysis for 140 Cow Dairy A 144 cow herd and $17.50 per cwt milk price are used as A partial budget considers changes to an operation due to a basis for installing two AMS at a cost of $220,000 per AMS adoption including increased or decreased incomes unit. The annual maintenance cost is $7,000 per robot. or expenses. All costs are on an annual basis. At $17.50 The producer expects a ten year useful life out of the AMS per cwt milk price for 144 cows, an additional $58,212 of at which time he plans to retire and estimates the robots milk production income is generated. Reducing SCC by can be resold for $40,000 each. Using a combination of five % with a $0.003 per 1,000 ml change yielded $1,317 in borrowed and own money, the interest cost is 5.5 %. And, premiums. A one % decrease in cow sales equaled -$1,080 the producer further insures the AMS at a value of in cull cow sales. Expected gain due to the herd software $400,000 higher than the current system at a rate of and related management records is $5,040. Total $0.005 per $1,000 of valuation. increased incomes equaled $63,489. The producer is currently using 9 hours of labor for milking Decreased expenses that also created a positive impact including set-up and clean-up and expects the time for include labor savings of 0.4 hours of heat detection, 6 fetching cows and clean-up of the AMS area will be 3 hours of milking and 0.6 hour of labor management per hours per day. Heat detection is projected to decrease day. This equates to financial savings of $2,190 in heat from 40 to 15 minutes per day. The labor rate for the detection and $32,850 in milking labor. And reduction in milking and heat detection is currently hired at $15 per labor management time for the owner was valued at hour, including benefits and employment taxes. $3,942. The total decreased expenses equaled $38,982 and when added to increased incomes gave a total The producer recognizes that there will be an additional positive impact of $102,471 by adopting AMS. 0.6 hours per day of records management with the AMS but also estimates there will be a reduction of 0.6 hours On the negative impact side only increased expenses are per day in management of labor. The labor rate for record entered as no decreased incomes are expected. The and labor management is valued at $18 per hour. capital recovery cost of the robots includes the depreciation and annual interest cost of owning the AMS. The herd has a current bulk tank average of 70 pounds per Depreciating the AMS out over ten years and charging 5.5 cow on 2x milking. A seven pound per cow (10%) increase % interest against the purchase value yields a cost of in milk production is projected. The producer also expects $60,200 annually. the AMS to do a better job with pre and post milking sanitation, thus reducing his SCC by five %. The producer Increased repair and insurance costs stems from an annual expects a gain of $35 per cow due to availability of cow maintenance contract on the AMS and the additional production, reproduction and health information. value to insure the AMS at total of $16,000. Additional feed costs of $22,270 come from the dry matter needed to The Total Mixed Ration (TMR) fed to the herd currently produce the additional milk along with changes in total costs $0.125 per pound of dry matter. The daily dry matter TMR costs due to pelleted feed and/or individual feeding intake per cow will increase with the additional seven of cows in the AMS. This producer expected a $0.002 cost pounds of milk. Even though now using a pelleted feed in reduction per pound of dry matter. Due to a one % the AMS, a very small decrease of $0.002, one-tenth of decreased cull rate, heifer replacement costs decrease one cent, is estimated as the change in cost per pound of $2,304. Increased utilities, mainly from electricity, add dry matter due to individual cow feeding. $972 while increased records management labor adds $3,942. Total increased expenses and total negative The producer expects a one % decrease in herd turnover impacts are $101,080. rate. Replacement heifers are valued at $1,600 and cull cows sold for milk or dairy at an average of $750. Net financial impact, positive minus negative impacts, is calculated at $1,391 for this example. But, quality of life An increase of $8.25 per cow per year for electricity is improvements from a flexible management schedule and a anticipated with AMS.
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